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Eurozone exits deflation but pressure for ECB boost persists

Eurozone inflation rose to zero percent and out of negative territory in October, official data showed Friday, but the level is still low and will press the European Central Bank to pump up its stimulus.

ECB head Mario Draghi hinted heavily this month that the central bank will boost its contested bond-buying programme given low inflation levels across the 19 countries that share the euro.

The step up to zero percent from negative 0.1 percent a month earlier will do little to reverse Draghi’s course, analysts said.

The EU’s Eurostat statistics agency also said eurozone unemployment dropped to 10.8 percent in September, the lowest level since January 2012.

Across the EU’s 28 members, the rate stood at 9.3 percent, it said.

“Although today’s inflation and unemployment data for the eurozone revealed small improvements, they are still very weak by past standards, suggesting that the ECB cannot afford to delay increasing its policy support much longer,” said Jessica Hinds, European economist at Capital Economics.

In March, the ECB launched a more than one-trillion-euro stimulus plan running through to September next year in order to get inflation closer to its 2.0 percent target.

– ‘No taboos’ –

Despite that, the ECB’s chief economist this week told AFP that there is a growing risk that inflation in the eurozone will not return to levels conducive to healthy economic growth, thus opening the door to more central bank action.

“There are no taboos,” Peter Praet said, on the measures needed to push inflation back to more suitable levels.

The exit from deflation came as the steep fall in energy prices, led by oil, slowed in October to 8.7 percent annually instead of 8.9 percent the previous month, the data showed.

ING analyst Teunis Brosens said the inflation data made the “inflation anxieties” expressed by the ECB last week seem “odd”.

“It is hard to escape the notion that inflation was merely an excuse to talk down the euro exchange rate last week,” Brosens said, referring to the euro’s strong trading against the US dollar that hurts Europe’s exporters.

Via eubusiness

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